Legal Definitions - class director

A class director is an individual appointed or elected to a company's board of directors specifically to represent the interests of a particular group or "class" of shareholders. This often occurs when different classes of shares exist, each with distinct rights, privileges, or vulnerabilities, and the company's governing documents (like its articles of incorporation or bylaws) grant a specific class the power to elect its own representative to the board.

Here are some examples illustrating the role of a class director:

• Venture Capital Investment: Imagine a technology startup that has raised funding from a venture capital (VC) firm. The VC firm typically receives a special class of preferred shares (e.g., Series A Preferred Stock) that comes with specific rights, including the right to appoint one or more directors to the company's board. The individual appointed by the VC firm would serve as a class director, ensuring that the interests of the Series A preferred shareholders, such as protecting their investment and influencing strategic decisions, are directly represented in board discussions.

• Company Restructuring or Bankruptcy: Consider a large corporation facing financial distress. If the company has issued different classes of debt or equity, such as senior secured bonds and junior unsecured bonds, the terms of these securities might stipulate that if the company defaults or enters bankruptcy proceedings, the holders of a particular class of debt or preferred stock gain the right to elect a director. This class director would then represent the specific interests of those bondholders or preferred shareholders during the restructuring process, advocating for their claims and ensuring their perspective is heard as the company navigates its financial challenges.

• Family-Owned Business with Non-Voting Shares: In a family-owned business that has expanded and brought in outside investors, the founding family might retain a class of common shares with superior voting rights, while outside investors hold a class of non-voting or limited-voting shares. To provide some representation for these outside investors, the company's charter might allow the holders of the non-voting shares to collectively elect one class director. This director would then serve as a voice for the non-voting shareholders, bringing their perspectives and concerns to the board even though their shares do not typically carry voting power for general board elections.